RESOURCES - SINGLE AND DIVORCING PARENTS

Divorce, Bankruptcy & Discharge of Marital Debt

In a decision from the 6th Circuit Court of Appeals, that court affirmed the Bankrupcty Court's original decision when a former husband appealed a decision that ordered him to cough up nearly $5,000 arising out of a fraudulent transfer during the divorce. This is clearly a case of "be careful what you wish for!" Not only did the 6th Circuit find that ex-H owed the Trustee in Bankruptcy that amount--but the Court went further. At the end of the day, ex-H was ordered to restore over $47,000 to the Trustee.

How did that happen?

Former Wife was awarded her retirement interests (about $18,000) in the Judgment of Divorce (JOD). She also assumed $28,000 in debt from her parents and a significant amount of credit card debt (about $60,000). The credit card debt was for charges incurred during the marriage for household expenses. Then she declared bankruptcy, seeking to discharge all of that debt. Of course, her ERISA Plan benefit was protected in bankruptcy.

Former H was awarded the parties' house and the mortgage encumbering it . The net worth of this asset was about $17,500. The Trustee claimed that the JOD terms resulted in a fraudulent transfer. It does seem "odd" that each spouse received roughly 50% of the marital assets if you overlook the significant debts the former wife assumed. Right--that's what the 6th Circuit thought, too. Creative debt re-structuring in the JOD.

Ex-H probably wishes he had left well enough alone.

It is important to note that the 6th Circuit Court applied the substantive law of Ohio. However, since Ohio and Michigan are both equitable distribution states, the result in Michigan should be the same.